Prospects good for manufacturing production bases in Indonesia, says HKTDC

March 7, 2017

HONG KONG - At a time of rising production costs across Asia, Indonesia is increasingly becoming a prime manufacturing destination, according to a new research report from the Hong Kong Trade Development Council.

“Continued efforts to improve its infrastructure and administrative efficiency, along with an increasingly affluent domestic market, have allowed Indonesia to successfully compete with other members of the ASEAN Economic Community (AEC) to secure a larger share of the region’s manufacturing investment,” the report says.
“It has also become one of the nation’s priority sectors in terms of attracting FDI.”
Not so long ago, Indonesia was noticeably lagging behind in the battle to attract investors looking for alternative production bases outside of China.
“The GDP contribution of Indonesia’s non-oil and gas manufacturing sector had stalled around the 18% mark for five years and the country trailed Singapore, Thailand, Malaysia and Vietnam in terms of global manufacturing competitiveness rankings,” the report says.
“As with many of the word’s emerging economies, Indonesia was also far from free of red tape and corruption. Moreover, due to an unclear delineation of property rights, the cost of registering property in Indonesia could be twice as high as doing so in other ASEAN countries.
“Similarly, land use disputes, including duplicate land ownership and land management certificates, were widely reported.”
As part of the process of playing catch-up, the Indonesian Government promised to combat corruption and cut bureaucracy, the report says.
“Since the third quarter of 2015, the Government has issued a series of Economic Policy Packages relating to deregulation, de-bureaucratisation, law enforcement and business certainty, as well as to the overall ease of carrying out commercial activities.
“It has, for example, combined a number of the regulations relating to national product standards – Standar Nasional Indonesia (SNI) – into one as part of a bid to eliminate unnecessary compliance expenses and improve cost efficiency.
“Another sign of just how determined the country is to create a competitive and business-friendly investment climate is its new integrated one-stop service centre (PTSP).
“Launched in January 2015 by the Indonesia Investment Coordinating Board (BKPM) and supported by 22 Indonesian Ministries and Government agencies, the PTSP’s remit extends across the licensing processes required for all business sectors.”
The Government has also assigned the status of Special Economic Zone (Kawasan Ekonomi Khusus or KEK in Bahasa Indonesia) to 10 areas specialising in particular industries, ranging from palm/rubber processing and automotive industries to fisheries, logistics and tourism. In order to attract more investment and boost trade.
“These KEKs offer preferential tax and customs arrangements and similar facilities to free trade zones (FTZ), bonded warehouses and industrial estates,” the report says.
Additionally, a range of new fiscal incentives and special arrangements for land ownership have been promised. Joko Widodo, Indonesia’s President, has stated his intent to establish 25 KEKs in Indonesia by 2019.
These 25 are in addition to the 10 zones currently under development – Sei Mangkei in North Sumatra, Tanjung Api-Api in South Sumatra, Tanjung Lesung (tourism) in Banten, Mandalika (tourism) in West Nusa Tenggara, Maloy Batuta Trans Kalimantan (MBTK) in East Kalimantan, Palu in Central Sulawesi, Bitung in North Sulawesi, Morotai in North Maluku, Tanjung Kelayang (tourism) in Belitung and Sorong in West Papua.
The Government is now working on simplified investment procedures for industrial estates.
The report says it can currently take up to 18 months to process all the licences necessary for a corporate business to begin construction of a manufacturing facility in Indonesia.
“The standard procedure for incorporating a foreign investment company (PT PMA) alone can easily take up to 60 days,” it says.
“The whole investment processing period, however, can now be cut down to around one or two weeks in one of the 14 designated Industrial Estates in North Sumatra, Banten, South Sulawesi, East Java, Central Java and West Java.
“This is due to new exemptions from the majority of the previously necessary licences and the right to start project construction prior to obtaining construction permits.” (ATI).